EOG is, by a considerable margin, the largest horizontal oil
producer in the world. That means the company has access to the
best data available on horizontal oil production and
resources.

Put simply, EOG and Thomas believe that the futures market is
all wrong about oil prices. The company is bullish on oil and
focused on producing more of it.

What EOG sees -- and the market doesn't seem to grasp -- is
that for all intents and purposes, the horizontal oil boom is
coming from only two plays: the Bakken Formation in the upper
Midwest and the Eagle Ford Shale in South Texas. A slide from
EOG's most recent investor presentation illustrates this
clearly:

Fully three-quarters of the horizontal oil being produced in
the United States comes from the Bakken and Eagle Ford. Without
these plays, the horizontal boom would be barely noticeable.

Equally important to note is that production growth in both
the Bakken and the Eagle Ford is slowing significantly. The
growth of production both by rate and absolute amount in both of
these plays appears to have peaked.

During his recent presentation, EOG's Thomas was asked what
the next big horizontal oil play in the United States would be.
His answer? There isn't going to be one.

EOG has scoured the United States and hasn't found a new play
with anything close to the productive capability of the Bakken
and Eagle Ford.

What makes the Bakken and Eagle Ford unique is that they are
crude oil plays. Most of the other large horizontal plays are
"combo" plays that have large hydrocarbon accumulations, but much
of those hydrocarbons are in the form of natural gas and natural
gas liquids.

For example, in his presentation, Thomas referred to the
Permian Basin in West Texas as having lots of barrels of oil
equivalent (BOEs) -- but heavy on the "equivalent" and light on
the oil. There is going to be a lot of production from the
Permian in the coming years, but a great deal of it won't be
oil.

Large, profitable oil plays are few and far between, and they
are getting harder and harder to find. The Bakken and the Eagle
Ford are #1 and #1a, and there is no #2.

So what does this mean for investors? In my view, it means
that while oil production in the United States will keep growing
for the next several years, the pace of that growth is going to
be greatly reduced. With annual global oil demand growing at
roughly 1 million barrels a day and oil production outside of
North America not growing at all, oil prices are going to remain
high and perhaps even go higher.

The companies in the sweet spot are the ones that have locked
up large land positions in the top horizontal oil plays. EOG is
one of those;
Continental Resources (NYSE:
CLR
)
is another.

EOG's Eagle Ford stake contains an astounding amount of oil.
EOG has 564,000 acres in the Eagle Ford oil window, the largest
position in the industry. EOG estimates it will eventually
recover 3.2 billion barrels of oil from that land -- and over
time, with improving techniques and technology, the company may
well do better than that.

Continental Resources is primarily focused on the Bakken,
where it produces nearly 100,000 barrels a day. Like EOG in the
Eagle Ford, Continental is the largest leaseholder in the Bakken,
with 1.2 million acres. (EOG also has a sizable position.)

Since 2008, Continental has increased its proved and probable
oil reserves from 159 million barrels to over 1 billion barrels.
That is a compound annual growth rate of 47% -- and there is
likely more still to come.

These land positions should allow EOG and Continental to
continue to increase reserves and production as oil prices rise
in the coming decades. As an investor, I'm most excited by what
the future might hold in these premier oil plays. Secondary
recovery methods such as water flooding (
which I discussed last week
) or natural gas injection could significantly increase the
amount of oil that these plays can produce.

The key is owning the land.

Risks to Consider:
The greatest risk is a potential "cure" for oil as our
primary transportation fuel. For example, the advent of
affordable and high-performance electric cars could put a
significant dent in global oil demand.

Action to Take -->
It's looking like we're in for a future of high oil prices -- and
the companies best positioned to thrive are oil producers like
EOG and Continental that control the largest and best land
positions in the Bakken and Eagle Ford.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

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